Hedge fund billionaires on the hot seat

Hedge fund managers appear before the House Oversight and Government Reform Committee. From left, George Soros, chairman of Soros Fund Management; James Simons, director of Renaissance Technologies; John Alfred Paulson, president of Paulson & Co.; Philip Falcone, senior managing director of Harbinger Capital Partners; and Kenneth Griffin, CEO and managing director of the Citadel Investment Group.

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Kai Ryssdal: Hedge funds have been blamed for a lot of the crazy volatility that's been hammering the markets since September. That goes a long way to explaining why some high profile hedge fund managers, including billionaire George Soros, had their turn at the long, green witness table on Capitol Hill today. Five of them answered questions from the House Oversight and Government Reform Committee.

Marketplace's Nancy Marshall Genzer reports.

Nancy Marshall Genzer: Hedge funds helped send the Dow down 14 percent last month. Investors forced them to sell stock as they withdrew their money. Hedge funds invested in credit default swaps, contracts that insure investments if they go sour. The swaps helped bring down Lehman Brothers. Republican Congressman Tom Davis of Virginia questioned the role of hedge funds today.

Tom Davis: Hedge funds now pose very public peril when the bets go bad.

What to do about those bad bets? California Democrat Henry Waxman chairs the House Oversight and Government Reform Committee. He asked hedge fund managers what they thought.

Henry Waxman: Do you believe the collapse of large hedge funds could pose systemic risks to the economy, and if so, do you believe this justifies greater federal regulation?

George Soros said yes . . .

George Soros: But we must beware of going overboard with regulation.

He and some of the other fund managers supported the idea of a new public clearinghouse to keep track of credit default swaps, which are often traded. Kenneth Griffin is founder and CEO of the Citadel Investment Group.

Kenneth Griffin: Regulators will have far greater transparency into this vast and important market.

Other hedge fund executives said they would support stricter disclosure requirements for their investments. Events may be getting ahead of them. On the other side of Capitol Hill today, Iowa Republican Senator Chuck Grassley said he'd re-introduce legislation to require hedge funds to register with the Securities and Exchange Commission.